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Farmers face subsidy error fall-out

Report finds processing costs out of control

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The cost of processing each single farm payment has often exceeded the claim's value, according to the Public Accounts Committee.

In a report published on 15 July 2008, the House of Commons committee says that continuing problems with the Single Payment Scheme IT system have racked up high processing costs, as well as damaging the Rural Payments Agency's ability to provide farmers with information and to process their claims.

The committee found that claims cost about £750 each to process and in many cases exceeded the value of the claims. It says that cutting costs depends on greater automation in processing small, standard claims, as well as reducing staff costs through a reduction in overtime and shift working.

The scheme was introduced by the European Union in 2005 to replace 11 separate crop and livestock production subsidies. But in the first two years nearly 20,000 farmers received incorrect payments and overpayments reached £37m.

"Restoring farmers' confidence will depend on the agency's improving its business processes and IT systems to the point where it can process claims efficiently and promptly and tell farmers when they are likely to be paid," said the committee's chair, Edward Leigh.

He also warned that the agency's failure to implement the scheme properly could lead a fine of hundreds of millions of pounds from the European Commission.

The report says that the IT system had been "rigid and task based" and not suitable for processing farmers' claims. It says that implementation was rushed, leaving staff poorly equipped to process claims or deal with farmer's queries about the progress of their claims.

Modifications to IT systems have added to the overall cost of the Single Payment Scheme, which reached £258m in May 2006. The committee says that in 2007-08 a further £22.8m was spent on IT changes, with millions more planned.

Between January 2003 and March 2008 the agency's contractor Accenture was paid some £122m for IT support and development. Although the agency had planned to spend about £20m with the company over the next two financial years, new contract arrangements mean that Accenture will carry a share of the financial risk if it fails to deliver.

Two other EU member states, Finland and Germany, had implemented the same scheme by "taking a more measured approach over a longer period of time," the report says, adding that UK ministers had underestimated the difficulty of implementing the scheme.

"Policy papers for ministers did not highlight all the risks of implementing this complex scheme against such a tight deadline," said Leigh. "Defra should check its processes for examining and challenging the assumptions in its policy proposals."